Drewry sees possible litigation over Brazil port reforms

Thursday, December 13, 2012

Drewry Maritime Advisors says despite port reforms announced last week by the Brazilian government "a series of thorny issues remain unresolved and will need to be addressed soon to bring serenity back to the sector."
Brazil indicated it will invest $26 billion in ports network to make them more efficient and maximize economic growth.Under reforms announced by President Dilma Rousseff, private terminals will be allowed to handle third-party cargo and concessions will be awarded to terminals with the lowest tariffs instead of according to whether they give the highest payment to the government.
Drewry said in the container segment there is "bitter rivalry" between concessionaires in public ports who complain that private terminals exercise unfair competition.
"The private terminals position has now been vindicated by the government, but some concessionaires invoke the unconstitutionality of the recent measures," the London-based consultant said.
"There will now be 3 different regimes for port operators: private terminals, concessions based on the highest offer, and concessions based on the lowest tariffs. This new framework is ripe with potential further conflicts on the issue of the 'level playing field,'" it said.
Drewry said "contracts at 98 terminals of all types and sizes have expired or about to expire. Their operators were anxiously expecting that the contracts would be extended, but for 55 of them, the government has decided that they should be re-tendered. The other 43 might be extended for 25 years, after negotiations involving commitments to carry out new investments and introduce additional capacity and efficiency gains."
It said some operators might "elect to go to court to protect what they consider to be their legitimate interests."
The port reforms were originally expected to take place in June, but were postponed, and Michel Donner, senior advisor at Drewry, said "these six months of indecision have frozen many new project developments, on the grounds of heightened regulatory risks. The concerns have been partly reduced, but not completely removed."
He said the announced investments and reform "provides a new landscape for the whole sector, among others by facilitating the penetration by new players. The changes are likely to contribute to unlock the badly needed capacity expansion of the port system, and will bring up a host of new business opportunities for private investors, albeit possibly with lower profitability levels.”
Donner said the first projects on the Brazilian government’s list are a container terminal in Manaus, and the Porto Sul deep-water multipurpose port complex in Ilheus (Bahia). He said another project likely to progress rapidly is the second container terminal in Suape. - Chris Dupin